Pension Vs ISA

Albermarle

Firegirl said:

jamesd said:

If intended for life and using constant inflation- adjusted income, the 4% rule, 5% is quite aggressive.

Here the plan isn't 5% for life but rather a split of the sort that Guyton used with his clients: a lifetime portion using the Guyton-Klinger rules and a discretionary portion to be spent as desired. In this case part of all of the discretionary is planned to bridge the years until other pensions start. That's one of the ways his clients routinely use it.

Learning more every post!

I found this article with a quick google search
https://jsevy.com/wordpress/index.php/finance-and-retirement/retirement-withdrawal-strategies-guyton-klinger-as-a-happy-medium/

You might like this as well.
Setting a strategy for retirement withdrawals (vanguard.com)

Fox40

Firegirl said:

Great minds Amanda1024.  I’ve just checked and the current contributions are made by the agency. I’m not putting any contributions so I’ve dropped them an email to see if there is any matching if I put a percentage in.  I’m sure I checked this before but worth double checking!  I’ve also asked what percentage they are contributing.

response already!
Strange though cause I can see that this tax year I haven’t contributed anything on the nest portal, I better check
my payslips!

‘As your employer we contribute 3% into your pension pot, it is not matching contributions, your deposit consists of 5% unless you opt to increase this by reaching out to our pensions team.’

Update again….looks like Nest aren’t separating the split between company contributions and my contribution's.  This investigation into pensions is uncovering more every step of the way!

The Agency will be making an employer contribution but will be using part of your billed rate to do this i.e. you are paying for it.

I'm also a contractor operating inside IR35 with a Client -> Agency -> Umbrella company -> Me payment chain. My umbrella company offers salary sacrifice which I make use of as this is far more beneficial as I save not only Income Tax but Employer and Employee National insurances contributions as well (Remember you in effect are paying the Employer National Insurance out of the billed rate)

If you are on direct Agency PAYE, you may want to look at moving to an Umbrella company that offers Salary Sacrifice into your own SIPP.  

jamesd

You'll probably find this interview with Jon Guyton interesting as well, scroll down a lot to get to the audio:

https://www.kitces.com/blog/jon-guyton-cornerstone-wealth-retirement-income-planning-guardrails-decision-rules/

Firegirl

Fox40 said:

Firegirl said:

Great minds Amanda1024.  I’ve just checked and the current contributions are made by the agency. I’m not putting any contributions so I’ve dropped them an email to see if there is any matching if I put a percentage in.  I’m sure I checked this before but worth double checking!  I’ve also asked what percentage they are contributing.

response already!
Strange though cause I can see that this tax year I haven’t contributed anything on the nest portal, I better check
my payslips!

‘As your employer we contribute 3% into your pension pot, it is not matching contributions, your deposit consists of 5% unless you opt to increase this by reaching out to our pensions team.’

Update again….looks like Nest aren’t separating the split between company contributions and my contribution's.  This investigation into pensions is uncovering more every step of the way!

The Agency will be making an employer contribution but will be using part of your billed rate to do this i.e. you are paying for it.

I'm also a contractor operating inside IR35 with a Client -> Agency -> Umbrella company -> Me payment chain. My umbrella company offers salary sacrifice which I make use of as this is far more beneficial as I save not only Income Tax but Employer and Employee National insurances contributions as well (Remember you in effect are paying the Employer National Insurance out of the billed rate)

If you are on direct Agency PAYE, you may want to look at moving to an Umbrella company that offers Salary Sacrifice into your own SIPP.  

I worked through an umbrella company before, then limited and now direct….. I didn’t realise that Umberella company would potentially be better. Thanks 

update - I called my previous umberella company and looked at their website and found this….

’Voluntary employer private pension contributions

It’s an option sometimes made available to employees, which sees the employee reduce their taxable earnings by the amount of their pension contribution. The employer will pay the full pension contribution amount.

In addition to the tax savings, as a result of the lower salary, National Insurance (NI) payments owed to HMRC by the employer and the employee are reduced. This helps both parties operate with greater tax efficiency and ensure the worker still receives their full pension contributions.

However, P****l (the umberella company) will even pass on the employer’s NI savings to you, the worker. This is not always the case.’

Now to work out if this is a good option!  Looks like it might well be! @Fox40

Firegirl

Next info, as @Fox40 explained, I checked with my agency and  they operate the pension scheme as Salary Sacrifice.  So I gave up the right to receive part of my pay in return for the employer’s agreement to provide some form of non-cash benefit in this instance pension.  5% of my pensionable pay is deducted from my gross pay and then tax and NI is calculated so I pay less tax and NI and they said I do not get tax relief from the government. 

On my payslip pension employers is the agents contribution and pension employer’s SS is the employee's salary sacrifice amount which is then paid to NEST as employers because I have given up that part of my pay. The amount on the nest account shows in the “employer’s contributions” on the NEST account. 

So am I right in thinking even though there is no tax relief as such, my salary is effectively reduced by 5% so I won’t be getting taxed on that anyway.  The agency pay in 3% as my employer and I’ve checked it’s not a matching scheme.

Ive a call set up with an umbrella company next week to see how that would work out.

Ive also spent some time doing some calculations to work out how much I can/will pay to the pension using this calculator.

https://www.moneysavingexpert.com/tax-calculator/

Albermarle

So am I right in thinking even though there is no tax relief as such, my salary is effectively reduced by 5% so I won’t be getting taxed on that anyway.  The agency pay in 3% as my employer and I’ve checked it’s not a matching scheme.

This is correct. 

Using salary sacrifice means you get tax relief automatically. Plus you get an NI saving.

Firegirl

And I think the benefit of going with an umbrella company will be that they will pass on the employer NI savings to me, and I can direct contributions to my private pension rather than Nest.

Think I’ve got it now…..let’s see how the meeting with the umbrella company goes next week.

Fox40

Firegirl said:

And I think the benefit of going with an umbrella company will be that they will pass on the employer NI savings to me, and I can direct contributions to my private pension rather than Nest.

Think I’ve got it now…..let’s see how the meeting with the umbrella company goes next week.

@firegirl - You've got it

Some umbrellas will allow you to pay into your own SIPP, some will not. It is a question to ask them. It can get confusing as they may also auto-enrol you into NEST as they need to offer a workplace pension. If they do you just cancel that and continue to make payments to your SIPP.

I personally use Paystream as my umbrella company and my entire pension contribution goes through as an employers contribution into my SIPP so comes out before any NI contribution calculations are made.

Firegirl

Thanks @fox40

I have previously used Parasol so that’s who’s getting in touch next week. I’ll have a look at paystream too. Thanks

Firegirl

I got quotes from the umberella but it’s very difficult to compare.  The agency did uplift my rate to go umberella so I could make the assumption that because I can salary sacrifice for the pension and NI savings that I’ll be better off.

Ive had various different illustrations so in terms of take home pay it works out fine but so difficult to work out if I’ll actually be better off for moving umberella.